America’s sway over the world economy is being eroded by self-inflicted policy wounds, with a dangerous standoff over the debt ceiling putting renewed scrutiny on the dollar’s preeminent status in global trade and finance.
A behind-the-curve Federal Reserve struggling to corral inflation, a string of bank failures and now a political deadlock over the government’s ability to borrow are chipping away at US authority. At the same time, geopolitical fault lines are hardening, with the US assisting Ukraine in its war against Russia and locked in competition with China, two adversaries poised to exploit any misstep by policymakers in Washington—such as a first-ever US debt default.
Warnings about the decline of American prestige are everywhere. “Anything that moves us away from being viewed as the world’s reserve currency, of being the safest, most liquid asset in the world, is bad for the American people, bad for the dollar and bad for the US government,” Beth Hammack, co-head of the global financing group at Goldman Sachs Group Inc., told Bloomberg Television on May 9.
